JOURNALS OF ROBERT MAAS

Monday, April 07, 2014

KENSINGTON: GHOST TOWN

BLOG 146

KENSINGTON: GHOST
TOWN?

There was a
curious article in the Evening Standard recently by Simon Jenkins that caught
my eye. Simon was bewailing the fact
that where he lives, The Royal Borough of Kensington and Chelsea, has become
what he calls “Ghost Town”.

He surmises
that his paucity of neighbours is because “most of the properties, in some
cases entire blocks of flats, are money-laundering tax-avoiding scams”. He then explains (I assume from surreptitious
peeping through letter boxes as I cannot see how else he might know) “as junk
mail lies empty and leaves piles against front doors, entire postcodes are
little more than Swiss bank accounts before the Swiss were forced into
disclosure”.

This seems
to reflect a number of misconceptions.
Firstly there are far easier ways to launder money than saving it up
until it accumulates to several million pounds and then buying a London
property. It is hard to acquire a London
property without using both a solicitor and an estate agent, both of whom are
legally required to satisfy themselves that they are not dealing with the
proceeds of crime. Secondly, I find it
hard to see how buying a UK property can enable anyone to avoid tax. In most cases this is in any event not UK
tax; it is foreign tax because by definition (or at least by Simon’s
definition), the owners of these empty properties are not UK residents. Assuming however that Simon is right, it is
not possible to create a “money-laundering tax avoiding scam” because
money-laundering is using (or hiding) the proceeds of crime, and avoiding tax
is not a crime. It is however somewhat
worrying that, as, I assume, a responsible journalist, Simon believes that
there are such a large number of scammers that the likelihood of most houses being
bought by people wanting to live in them on those occasions (in some cases rare
occasions) when they visit London is so remote that the only realistic
purchasers are people who have made money through operating scams.

Finally
Swiss banks have not been forced into disclosure, at least to the UK
authorities. The agreement that
Switzerland has entered into with the UK to assist the UK in collecting tax has
been framed in such a way that Swiss banks disclose nothing to the UK tax
authorities – although they do disclose to the Swiss Central bank an aggregate
figure of tax that is owed to the UK by the bank’s UK customers but without
identifying the customer. Switzerland
places great store by bank secrecy. Some
individual Swiss banks have disclosed details of US customers to the US tax
authorities, but the Swiss courts have held that they have done so illegally
and as a result they face prosecution.

Simon then
leaps to, “the billions now financing London’s faceless towers … are mostly
fleeing taxes and disclosure rules elsewhere in the world”. By “faceless towers” I think that he means
apartment blocks. There are a lot of
those being constructed near where I work.
They are all being built by major developers and, personally, I imagine
are being financed by major banks. I
cannot think of any rational reason why a large developer should seek out those
who are fleeing taxes (I don’t myself have the faintest clue how to find such
people, let alone tap them for money) when they have the ability to borrow from
reputable banks.

O.K. Simon
doesn’t really mean “financed by”; he means “sold to”, as is apparent from his
supposition that a sheikh or an oligarch would wish to live in Knightsbridge,
not in Bermondsey or Nine Elms. I am
sure that he is right there. But I am
equally sure that there are a large number of wealthy foreigners who, unlike
Simon, cannot afford to buy an apartment in Kensington and Chelsea. (I am not even sure there are such things)
and would happily have a UK pied a terre in Bermondsey. Unlike Simon, I have little doubt that the
vast majority of the empty properties that annoy him have been bought as pied a
terres by people who do not wish to live in London but do wish to feel at home
when they visit our great city.

As a
liberal, Simon makes clear that he is against banning people from buying
properties (although some might think that seeking to incite the mob by writing
articles accusing them of fraud with no basis whatsoever for such an accusation
is getting pretty close to it), but he is strongly in favour of taxing
them. Fair enough, but how? Simon seems to quite like a wealth tax of,
say, 1% a year on house values over £2million (he is too coy to explain whether
Chez Jenkins falls into that category).
He is against a mansion tax because “it will push the cash-poor
overnight out of rich areas. It will be
a “bedroom tax” for the middle classes”.
I am a bit lost here. Why should
a 1% mansion tax on a £2million house hit the cash-poor, but a 1% wealth tax
(£20,000 p.a.) would not do so?

But that is
a philosophical question of no relevance here.
Because Simon is opposed to taxes that “go to the Treasury”. He wants house-owners to pay taxes to boost
the “hard-pressed revenues of London councils”.
He does not think that foreigners with empty houses in Kensington and
Chelsea should contribute to the well-being of the poor in say, Grimsby. The taxes of the Sheikhs and oligarchs for
their palatial residences in Kensington should be used solely to ease the
plight of the not-so-poor who can afford to live in Kensington and Chelsea!

Simon
actually wants a higher council tax band on any house worth more than “roughly
£1million or more”. I am a bit puzzled
by that “roughly”, as taxes generally require certainty to be able to enforce
them. However, whatever it means, Simon
admits that it will hurt him and his friends, who apparently all live in
properties worth more than that.

I then got a
bit lost. Simon explained that for his
house he currently pays Council tax of £2,133.
The top rate in Brent where I live is £2,715, and it is a much poorer
borough than Kensington, which suggests that the council tax is an unfair tax
if it is so lenient on the rich residents of Kensington. Indeed, it undoubtedly is because it is based
on 1991 values as no government since then has had the guts to revalorise the
bands and they are clearly wholly unrepresentative of the current mix of
properties. But that is by the way. Simon thinks that if he lived in New York,
his property tax would be $10,000 - $30,000 (£6,000 – 18,000). Even if his council tax had been indexed
(i.e. his Tory council had been more profligate) he would expect to pay £5,000
p.a. He thinks that an oligarch ought to
be paying £40,000 a year in British tax.
Actually I suspect that most are, because the ATED on a house worth over
£5million is £35,000 p.a. and that on one worth over £10million is £70,000 p.a.
and there is council tax on top. As
Simon calls for only one extra council tax band, I am left bewildered as to
what he believes he ought to be asked to pay – it seems to be the £40,000!

Simon ends
his article by explaining that, “we are not seeing the poor driven from
London. We are seeing an area of rich
west London becoming a very peculiar place.
The rest of the city can go about its business unconcerned. I doubt if there are many oligarchs in
Catford”. I doubt so too. But I also doubt that he is right in thinking
that we are not seeing the poor driven out of London. Simon points out that, “a decent flat can
still be bought in parts of Camden for under £300,000” and that if a family is
taking home £45,000 after tax (which is around £54,000 gross) it should not be
seeking to buy an average property but should look lower down the
spectrum. I do not claim acquaintances
amongst the poor, but I think that most of the people I know are earning way
below that, and I can see for myself that such people being driven out of
London (assuming that by that Simon means out of Central London into suburbia
(where I can afford to live) and those parts of the Home Counties within ready
commuting distance of London). If Simon
does not realise what most people earn, It would be fairer not to write about
things that are outside his experience.